Stocks rally after upbeat data; GBP await more Brexit votes


  • European markets build on previous gains

  • Golden Cross for S&P500; ISM beats forecasts

  • EURUSD under pressure after PMIs

  • Brexit stockpiling gives misleading UK PMI boost

  • GBP gains ahead of more Brexit votes


Stocks from China surged on Monday after pack of survey data showed manufacturing activity in the country is expanding once again. Solid gains were also posted in Japan and Australia. Unsurprisingly, equities from the Old Continent launched Monday’s trading higher. Miners and car makers led advance in the first minutes of trade. The DAX30 has rallied back above the 11600 level and trades back only 150 points from its highest level of the year.


The long-term picture for the S&P500 (US500 on xStation) continues to look constructive with the market recently printing a bullish cross (50 day SMA moving above the 200 day SMA. This is often seen as a bullish development but before getting too carried away it’s worth remembering what happened in early 2016 when this signal was printed. Similar to now, the market had printed a death cross (50 SMA < 200 SMA) a few months prior and then enjoyed an impressive recovery. However, it is worth noting that the golden cross just over 3 years ago actually signalled the near-term peak in price and there was another swoon lower - which actually took out the prior lows.


Recently, there’s a notable divergence in terms of data, with the Eurozone slowing markedly while the US continues to outperform. A microcosm of this can be seen today with the latest manufacturing figures from the old continent confirming drops in German and French activity with the two largest economies from the bloc seeing their readings in contraction territory below the 50 mark. In contrast, the US continues to outperform and while the final PMI from across the Atlantic did drop to its lowest level in almost two years, at 52.4 it is still firmly above the 50 mark. Furthermore, the more widely viewed ISM figure topped estimates in rising to 55.3 for March, marking a nice bounce from 54.2 prior. EURUSD is getting little support on the data front with the pair still trading close to its lowest level in a couple of years around the 1.12 handle.


The latest look at manufacturing in the UK has shown a bigger than expected rise, with the PMI for March moving up to 55.1 - the highest level in a year and well above the 52.0 seen last time out. However, the headline reading here is misleading to say the least with a closer inspection revealing that a big jump in stockpiling as Brexit fears mount accounts for a significant portion of the improvement. This is obviously not sustainable, and actually reveals a short-term increase due to firms taking preventative measures as a precaution against an unwanted Brexit outcome instead of a thriving manufacturing sector.


There’s been a steady big underpinning the pound today and it appears that the market is positioning itself for a positive outcome from this evening’s indicative votes. Reports that Labour will be whipping in favour of the so-called “Common Market 2.0” motion could lead to a high level of support for the motion proposed by Nick Boles. Should this occur then it may pressure the government to change tack in its Brexit approach and should the move come it would represent a significant shift away from May’s deal. Voting results are expected to come around 10:30pm GMT.  


Chart of the day - GOLD (28.07.2021)
Morning wrap (28.07.2021)
Daily summary: China spooks global markets
Chinese ADRs once again in the spotlight
BREAKING: US CB Consumer Confidence well above expectations
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